Equity grant

What is an equity grant?

An equity grant is an allocation of company shares or stock options given to employees (or advisors) as part of their compensation package.

The goal of an equity grant is to motivate and retain talent by providing them with a tangible stake in the company’s success. As the company’s value increases, so does the value of the equity granted, offering employees the potential for financial gains.

Equity grants typically come with a vesting schedule, ensuring that the employee earns ownership over time. This incentivizes long-term loyalty.

Equity grants usually include the following components:

• A vesting schedule. The vesting schedule defines when the employee will gain full ownership of the granted shares. Common vesting schedules include time-based vesting (where ownership is earned over several years), or performance-based vesting (which ties ownership to achieving specific business goals).

• A cliff. In some equity grants, there is a "cliff" period (typically one year), after which the employee vests a portion of their shares. After the cliff, the remaining shares vest periodically (monthly or quarterly) over the remaining vesting period.

• Grant date. This is the date on which the equity grant is officially given to the employee. The vesting schedule typically begins from this date.

What are the benefits of offering equity grants?

As well as helping to attract talent and incentivize loyalty, equity grants can help businesses:

• Align employee interests. By giving employees a financial stake in the company, equity grants align their interests with the company’s overall performance. This encourages employees to work toward company goals and contribute to its growth.

• Preserve cash flow. For startups or businesses with limited cash flow, equity grants are an effective way to compensate employees without needing to pay higher salaries upfront. This is especially helpful for early-stage companies that are focused on growth.

Encourage long-term focus. Since equity grants usually vest over time, they encourage employees to focus on long-term success rather than short-term gains, creating a more stable and committed workforce.